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IT IS AN anniversary without celebration: five years after the implosion of banking giant Lehman Brothers sparked the worst crisis in generations, the US can say it avoided catastrophe.
After just barely pulling back from the precipice, industry is picking up, home prices are gaining, banks are stable and American consumers have started spending – albeit still with great caution.
But the millions still jobless, and an economy still needing stimulus, shows the scars have yet to heal.
“I wouldn’t say we’re anywhere near having a fantastic situation again,” says Harvard economics professor Kenneth Rogoff. “But at least the economy has stabilised and is now moderately robust.”
The economy was already struggling under the housing market collapse when on 15 September 2008, Lehman crumbled and the government’s decision not to save it sent a shock down Wall Street.
The fall of the century-old US investment banking stalwart detonated an implosion in the US financial sector that reverberated around the globe.
The government quickly mobilised more than $420 billion to prop up other banks and automakers General Motors and Chrysler, whose collapse would have meant hundreds of thousands more jobs lost.
But that was not enough to contain the hemorrhage.
In the 12 months from September 2008, unemployment rocketed from 6.1 per cent to 9.8 per cent. The economy melted down, contracting at an 8.3 per cent annual rate in the final quarter of 2008.
With receipts sinking and intervention costs rising, the government deficit soared to $1.4 trillion, from 3.2 per cent of gross domestic product to 10.1 per cent by 2009.
“It was a very risky period, we could have had a new Great Depression,” said Rogoff.
Five years later, that nightmare has passed. With the exception of a mild relapse in early 2011, the economy has been growing steadily, if slowly, since the autumn of 2009.
“The ability of the US authorities to take an aggressive approach to resolve the financial crisis was decisive,” said Nicolas Veron, a researcher at the Peterson Institute for International Economics in Washington.
It was crucial to shore up faith in the banks.
A worker holding a box, leaves the Lehman Brothers headquarters at Canary Wharf in London.
After helping them with financial support, the government forced the banks to prove their strength via “stress tests” applied to their capital foundations.
That was done first in 2009, and was then cemented as an annual exercise in the Dodd-Frank legislation laying down fresh regulation for the financial system to avoid a repeat of the meltdown.
In February 2009 the new administration of President Barack Obama marshaled $787 billion to boost consumption and shore up the decimated housing industry.
The results? Home prices have certainly bounced back, and the administration says millions of families avoided losing their homes to foreclosures.
But home prices remain well below the pre-recession peak and millions more families still struggle to make payments.
Consumer spending, the fundamental motor of the US economy, is also still below its peak, partly because household wealth — including what people put away for retirement — has dramatically fallen.
“Consumers have had a wake-up call in terms of their retirement savings, and they can’t really lead a stronger recovery right now because they have to save more,” said Joseph Gagnon, a former US Treasury official.
And the jobs market and incomes remain weak. The unemployment rate, which peaked at 10 percent, is still 7.3 percent, and that does not count the number of Americans who have dropped out of the search for employment altogether, bringing the labor participation rate to a 35-year low.
For Nobel Prize-winning economist Paul Krugman, the efforts to revive the economy have been “an astonishing, horrifying failure.”
Had the government spent three times as much for stimulus, he wrote in his New York Times column, “We would be a richer nation, with a brighter future — not a nation where millions of discouraged Americans have probably dropped permanently out of the labor force.”
Doing so though would have piled more on the national debt. As it is, the money the Obama administration spent increased debt by more than 65 percent in five years, to some $16.7 trillion.
Five years later, too, the economy remains dependent on the Federal Reserve’s unconventional efforts to pump cheap dollars into it — around $3 trillion since the onset of the crisis.
But firming growth means that could soon be halted. Many expect the Fed to announce next week the winding down of its stimulus — the beginning of the end of crisis operations.
“We cannot declare a return to normal until we exit the Fed’s exceptional measures,” said Veron.
Greed.
@Moses: You just call out my name
And you know, wherever I am
I’ll come runnin’
To see you again…
@Moses: It’s perfectly reasonable. You can’t be going around looking at stuff for free. I live in quite a scenic area and the other day I saw some fella looking at some lovely things, bold as brass. I was having none of it. Stood in front of him until he left, so I did. Cheeky git.
We have done this lovely walk many times.(And contributed to the local economy by staying in a bnb and purchasing locally). I would not pay to walk again.
@Fiona Liston: Plenty that will. We don’t need ya
@Luma plex: I’m assuming you’re joking. If not, you think it’s ok to charge people to walk in the fresh air ? And people give out about expensive Dublin ? Clare will become the new rip off place to visit.
Very surprised the comments are open on this article…..the articles for commenting on are getting fewer by the day for some reason !
@Jb Walshe: After seeing some of the comments that were deleted before closing the comments on the article about the memorial to national soldiers I can understand why comments are not being open on all articles.
@Roy Dowling: Example?
@I’m Far Right: the most notable one was using Veradkers sexuality to attack him instead of just saying he shouldn’t have been there. No need for it and probably the reason comments were closed
@Roy Dowling: That sounds awful. Hopefully Leo didn’t see it. Poor wee lad.
@Jb Walshe: those debunked articles are hilarious, usually overlook plenty of facts to suit the explanation and comments are closed in case they’re rumbled.
@I’m Far Right: Ah so you are one of those. Don’t know who I’m surprised
@Fintan Stack: this is the real reason. Talk about how much you like Coldplay all you like, but don’t come here to discuss serious topics and expect not get censored at some stage by the blatantly biased Journal.
They must be in trouble if they’re asking for handouts in the middle of an article.
@Journal Snowflake: …and without so much as a reach-around.
@Fintan Stack: Well don’t read it if you don’t like it! There are plenty of other Irish news sources if you don’t like The Journal’s values. It’s free. What’s the problem? You pay for what you get.
@Journal Snowflake: yes, we’re the fourth richest country in the world, our worst off are 60% better off than the worst off in the UK, and somebody with four dependent kids who chooses never to work can get state supports including housing that equate to a salary of more than 50k before tax. Our medical care and education are free, older people get a pension even if they never contributed to one, along with free travel.
So yes, we’re being screwed, we should kick out our centrist governments and replace them with the IRA.
(Or the weird lad with all the gold bars).
Greed, greed and more ******k8n greed. What a sham of a country we have become.
@Charles Mc Carthy: It is not the ordinary people who are greedy but it is those few fat Greedy Councilors who firmly believe that it is their job to relieve people of their hard earned money. I haven’t visited the Cliffs since the council began charging for parking. None of my children have never visited the Cliffs. How many people who live within ten miles of the Cliffs will never visit the them?
@Seán Ó Maoildeirg: your kids are missing out. Park in Doolin old village for free, it’s 5 mins walk from walk to Cliffs of Moher, spectacular views along the way – although probably takes 90 mins at least to get to O’Brien’s Tower
I remember when there was just a car park at the Cliffs of Moher. No charge……. no bother at all. Then the greed started to kick in. I haven’t been back since
@Johannes Baader: you had a car back then? And you’re still driving? Respect!
Yeay capitalism !
@Alex Kane: You don’t understand what capitalism is.
@Alex Kane: Capitalism was the farmers who decided to use their own property as carparks and undercut the council one in price by a huge percentage. That was kind of cool huh? That’s the free market approach but the government doesn’t like the free market competing like that, so they shut down the competition. In short, capitalism was providing a good solution here and the quasi socialist government stopped it.
Boycott these activities and let’s see what happens when no money is getting in.
Comments closed for the protest at Cork City Library. What are you afraid of, Journal? Free speech?
The boom is back baby……greed is good
And what about Lahinch and Lehinch
All these objections are falling on deaf ears. It’s a long long way from Clare to hear
Well done to the protesters in cork
They’ll be charging to get in to O’Connors or McGanns next.
Nothing wild about the wild Atlantic way
@eoin fitzpatrick: It’s wilder than your one bed flat in dcc
Maybe they could raise the local property tax instead?
Clare locals should stick to farming and stop moaning. They’re our cliffs now.
@Luma plex: Your cheque is in the post.
Thieving c$$ts
Questions….
Surely stopping to drop someone off is not a parking violation…?
Can the double yellow lines be appealled ..positive action is needed.
I was one of the fools that had to pay e12 a person as there was 4 of us in car . To walk along in the rain with the THOUSANDS of others . 1% of them IRISH . 99% TOURISTS. They won’t let u stop the car anywhere near to let people out . As marshalls out moving traffic and ticketing ppl. They even charge u to go into the tower now . So basically rip off ireland at its best . 2 hrs at the cliffs . E48 entrance . 4 Coffees e16 . The rain free , definitely a Mastercard movement.
No one should be charged to walk on a cliff.
No one should be charged to drop someone off.
And there should be a legal maximum to charge people to park their cars.
How absolutely ridiculous.
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